2014 (12) TMI 673 - AT - Income Tax

Validity of revision order u/s 263 Invocation of provisions for higher claim of depreciation on Windmill Held that - The CIT was of the opinion that excess depreciation was allowed to the assessee in respect of windmill which was accepted by the assessee during the sec. 263 proceedings as typographical error - on this count, there was no infirmity in the order of the CIT. Electrical works including supply and installation of Electrical items and Development and other charges to KSEB part of renewable energy device or not assessee is entitled to higher rate of depreciation or not - Held that - In the assessment order, there is no discussion of whatsoever regarding this issue AO has absolutely closed his eyes and accepted the claim of the assessee as it is - It is incumbent upon the AO to cause necessary enquiry regarding the nature of assets and entitlement of depreciation - the CIT was justified in invoking the provisions of sec. 263 on account of lack of enquiry from the side of the AO. For granting higher rate of depreciation, it is necessary to examine the functional test of electrical equipment - It has to be seen whether it is an integral part of the windmill or not. Such finding of fact is absent in this regard - there is nothing on record to establish that on this touchstone of functional test, the electrical equipment are so designed that they can only be used as integral part of the windmill and it is not meant for any other use - It is also not established that the electrical works are designed in such a manner to facilitate power generation and distribution from windmill. The scientific reason is often discussed as the period of diminution for tangible assets - If the period of diminution or wear-tear is very fast, then higher rate of depreciation is granted - naturally the speed with which wind mills get discarded due to wear and tear, the electrical works do not get wear and tear so fast - on this basis, as well, it cannot be held that electrical works are not at par with the windmill as far as the period of diminution is concerned - sometimes to promote a particular activity the statute provides certain incentives in the shape of higher depreciation - the Appendix and the depreciation schedule has categorically worded that windmills and any specially designed devices which run on wind mills are qualified for 100 per cent rate of depreciation - if the electrical works are specially designed devices to suit the need of windmills, then only the assessee is entitled for higher rate of depreciation thus, the matter is to be remitted back to the AO for fresh consideration Decided partly in favor of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Invocation of Section 263 by CIT regarding higher depreciation claim on windmill.
3. Classification and depreciation rate of electrical works and development charges related to windmill.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was delayed by 75 days. The assessee filed a petition for condonation of delay, explaining that the authorized representative was involved in statutory audits and subsequently fell ill, causing the delay. The Tribunal found the reasons bona fide and condoned the delay, admitting the appeal for adjudication.

2. Invocation of Section 263 by CIT Regarding Higher Depreciation Claim on Windmill:
The CIT observed errors in the assessment order, noting that excess depreciation of Rs. 8,00,000 was allowed for the windmill. The assessee accepted this as a typographical error during the Section 263 proceedings. The Tribunal found no infirmity in the CIT's order on this count, as the excess depreciation was acknowledged by the assessee.

3. Classification and Depreciation Rate of Electrical Works and Development Charges Related to Windmill:
The CIT found that the electrical works and development charges to KSEB were not part of the renewable energy device and thus not eligible for higher depreciation. The assessee argued that these expenses were integral to the windmill installation, citing various precedents. However, the CIT held that the transmission lines and electrical works were not integral parts of the windmill, as they could function independently and were not exclusively designed for the windmill.

The Tribunal noted that the assessment order lacked any discussion on this issue, indicating that the Assessing Officer did not conduct a necessary enquiry. It emphasized the importance of the functional test to determine if the electrical equipment was an integral part of the windmill. The Tribunal pointed out that the depreciation schedule categorically specifies higher depreciation for "windmills and any specially designed devices which run on windmills." Since there was no evidence that the electrical works were specially designed for the windmill, the Tribunal remitted the issue back to the Assessing Officer for fresh consideration.

Conclusion:
The appeal was partly allowed. The Tribunal condoned the delay in filing the appeal, upheld the CIT's order regarding the typographical error in depreciation, and remitted the issue of higher depreciation on electrical works back to the Assessing Officer for further enquiry.